Capital Markets Authority approves license for online foreign exchange broker in Kenya

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The Board of the Capital Markets Authority (CMA) has approved the grant of a license to Execution Point Limited to operate as a Non – Dealing Online Foreign Exchange Broker in line with the Capital Markets (Online Foreign Exchange Trading) Regulations, 2017.

The non-dealing online foreign exchange broker license means the entity is licensed by the Authority to act as a link between the foreign exchange market and a client in return for a commission or mark-up in spreads and does not engage in market-making activities (buying and selling of foreign currencies).

This is the first license to be issued under the new regulations, which brought the oversight of online foreign exchange brokerage services under the Authority, which includes licensing and supervision of licensed entities.

Non-dealing Online Foreign exchange Brokers avail a trading platform to their clients that enables the clients to trade from anywhere and at any time using their electronic devices. The platform provides access to global markets and also provides an opportunity to clients to educate themselves on the global financial markets.

Non- dealing Online Foreign exchange brokers do not offer client advice or trade on behalf of their clients.    Clients deposit their investment amount with an account to be offered by the broker. The trader (client) is responsible for executing trades – buying and selling of any products on the platform and the requisite risk assessments are undertaken to determine suitability of clients to participate in online Foreign exchange trading.

Foreign exchange trading (FX) is the speculation of one currency price against another currency. It is an example of a Contract for Difference (CFD) which is defined as an agreement to exchange the difference in the value of an asset from the time the contract is opened and when the contract is closed.

When opening a FX & CFD account, an investor agrees to exchange the difference between the opening price and the closing price of the FX or CFD position with the Broker. One does not acquire ownership of the underlying asset when taking a long (buy) position nor are is one required to deliver the underlying asset when taking a short (sell) position. CFDs offer a simple method to speculate on different markets without owning the underlying asset on which the contract is based.

This is different from Foreign exchange Bureau business where parties actually hold the foreign currencies being exchanged based on spot exchange rates.